Monday, November 15, 2010

Thankfully, one thing the U.S. multinationals have not figured out how to outsource is Nebraska. Or Iowa. (granted we insource the cheap labor from "down south" but that's another topic altogether) In a crazy revelation it appears when you produce things other countries want, you create wealth. And not the paper printing type.... the old fashioned kind. Hmmm, almost feels like USA 1964. Or Australia 2010. [Apr 13, 2010: China's Quest for Resources Makes Billionaires Out of Some Australia

I mentioned a few years ago if there was one investment to hold for 50-100 years, it would be Apple farmland, especially with the population growth in the world, [Jun 20, 2008: World Population to Hit 7 Billion by 2012] and the parallel reduction in arable land [Jun 18, 2008: The Ultimate Shortage --> Water]due to the growth of urban areas (and potentially climate change). Some of the smart institutional money is early on this trend, but unless you are a hedgie or pension fund happy to buy up land itself, it's not an easy investment for the normal investor.

Bigger picture, one can see a future where U.S. wealth centers that are now concentrated around Washington D.C. (federal workers / lobbyist cabal) , Manhattan (investment bankers), and Stamford, CT (hedgies) might have a new sister out in the Midwest. Tiffany's Des Moines opening in 2014?

How quickly things changes... in 25 years this country has gone from "Farm Aid" concerts to the need for "Rust Belt Cities Aid" concerts. Of course that won't stop the huge subsidies the federal government is happy to dish out year after year rain or shine - have to buy those votes. [Mar 27, 2008: WSJ - Farm Lobby Beats Back Assault on Subsidies]

The best second-half for commodities in a generation is pushing U.S. farm incomes and agricultural land prices toward record highs.

While the 17 percent rise in the Thomson Reuters/Jefferies CRB Index of 19 raw materials since the end of June reflects higher prices for all commodities, agriculture led the biggest rally since 1972. Cotton prices surged 76 percent to a record, wheat jumped 48 percent and corn reached a two-year high.

At a time when the U.S. jobless rate is 9.6 percent and home prices are weakening, this year’s farm income may top the $87.3 billion reached in 2004, while cropland values will rise as much as 10 percent, said Neil Harl, an agricultural economist at Iowa State University and former adviser to the governments of Ukraine and the Czech Republic. The jump in commodities means more sales of Deere & Co. tractors and Mosaic Co. fertilizer.

“It will be a phenomenal year for farm income,” said Michael Swanson, a Minneapolis-based senior economist at Wells Fargo & Co., the largest U.S. agricultural lender. “We are not going to rebuild inventories in one year. This will take several years. Farmers are already running flat out, and it will take time for supply to catch up with rising demand.”

That surge may not last beyond next year because farmers will respond to higher prices by planting more crops, said Daryll Ray, director of the Agricultural Policy Analysis Center at the University of Tennessee in Knoxville. Corn planting will rise to a four-year high in 2011 and farmers will sow more wheat and cotton.

The U.S., the largest grain exporter, may exceed the 2008 record of $115.3 billion in shipments next year, Joe Glauber, the USDA’s chief economist, said last month.

“The rural economy is going to lead the way,” Jason Henderson, an economist at the Federal Reserve Bank in Kansas City, Missouri, said in an interview last month. “Those high crop prices will last until the next crop. Export demand will continue to expand.”

Agriculture accounts for 1 percent of the $14.3 trillion U.S. economy and its impact may be 10 times greater when including related businesses such as farm supplies, grain handling and food making, Henderson estimates. (pretty shocking it is that low a percent of GDP)

As for farmland prices:

Farmland prices are gaining as the return from each acre increases, a trend that’s also attracting investors.

The Kansas City Federal Reserve Bank on Nov. 12 said cropland values in the seven-state region it monitors jumped as much as 12 percent in the third quarter, the biggest such gain since crop prices touched records in 2008. In Iowa, the largest corn- and soybean-growing state, farmland prices rose 5.7 percent during the six-month period ended Sept. 1.

“In 34 years, I’ve never had so much available capital and so little property,” said Murray Wise, who owns a real-estate brokerage and land-auction company in Champaign, Illinois.

Translation - holy smoke, look at all this hot money raining down from the heavens, chasing a fixed amount of assets! It's almost like Riverside, CA circa 2006! Please send all thank you notes to c/o Mr. Bernanke...

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